Closing Costs Guide-Created by Jerry Feeny

Real estate closing costs can be confusing. These PDFs created by Jerry Feeny,  a well known and respected New York Metro real estate attorney, cover closing costs (coops, condos, townhouses-and other real property)  for buyers and sellers in New York City , The Hamptons and Westchester & Rockland Counties. 

We hope you find this guide helpful in ‘demystifying’ the age-old question of buyers, ‘what are my closing costs?’ And from sellers, ‘what costs do I have to pay at closing and what is left over from the sale price?

“Employment conditions have continued to slowly improve, inventory levels have remained modest, and new development stabilized, but tight mortgage underwriting conditions remain a challenge to the market.”

• Median sales price was $775,000, 0.9% below $782,071 in the prior year quarter. Price per square foot increased 6%, and average sales price increased 0.8% over the same period.
• The S&P’s downgrade of US debt, paired with the European debt crisis, Wall Street bonus concerns, and large swings in the stock market indices all contributed to the market’s slowed pace leading into the first quarter. As a result, the number of sales slipped 3.5% to 2,311 from 2,394 in the prior year quarter.
• Active listing inventory slipped 0.6% to 7,560 in the first quarter from 7,605 in the prior year quarter, but remained consistent with the 7,478 quarterly average over the past ten years.
• Days on market—the number of days between the last price change, if any, and the contract date—saw a 25-day increase to 152 days from 127 days as older inventory was sold off.
• Listing discount—the percent difference between the list price at time of sale to the sales price—increased to 6.3% from 4.5% in the same period last year.

Manhattan rental apartment buildings’ market value increased 15 percent, cooperative apartment buildings increased 9.5 percent and condominium units 7.1 percent compared to a year ago.

In Brooklyn, rental apartment buildings increased 3.9 percent, cooperative apartment buildings 1.6 percent and condominium units 1.2 percent compared to 2011.

Compared to the peak of the market in 2007, the market value of Manhattan rental apartment and cooperative apartment buildings has increased 22.5 percent, and condominium units increased 48.2 percent according to the City of New York.

In Brooklyn, the market value of rental buildings was up 3.5 percent, cooperative apartments 18.4 percent.
These market value increases have resulted in a 40 percent increase in real property taxes since the peak of the market in 2008.

From MIke Slattery, Senior Vice President, REBNY Research Department

“Tight mortgage credit conditions continued to drive rental prices and activity higher.”

• The median net effective rent (face rent less landlord concessions) jumped 9.5% from $2,950 to $3,121 in the same period last year. The year-over-year-gains were consistent across all rental price indicators.
• The 2-bedroom and 3-bedroom markets outpaced their smaller counterparts,increasing 14% and 18.1% respectively over the same period.
• New rental activity (excluding lease renewals) was up 10% from 7,217 to 7,942 in the same quarter last year.
• About 7.4% of new leases had some form of landlord concession compared to the 40.5% in the prior year quarter. For those leases with concessions, the average amount was the equivalent of 1.2 months of free rent.
• Days on market—the number of days from original list date to lease signing—was at its second fastest pace of 37 days in 15 years, which is when we began tracking this metric.

“After a year of mixed economic news, the Manhattan housing market, while continuing to experience overall price stability, closed out the year with a slower pace of sales.”

•  Median sales price was $855,000, a modest 1.2% increase from $845,000 in the prior year quarter. Price per square foot increased 5.6% to $1,117 from $1,058 over the same period.
• There were 2,011 sales in the fourth quarter, 12.4% less than 2,295 in the prior year quarter. The fourth quarter had the lowest number of sales since the same period six years ago, perhaps related to the unusual surge in sales in the prior quarter. Pending sales were also below the prior year level.
• There were 7,221 active listings at the end of the fourth quarter, essentially unchanged from the same period last year, but 2.6% less than the ten-year quarterly average of 7,412.
• Days on market—the number of days from the last price change if any to the contract date—saw a modest 5 day increase to 130 days from 125 days, still consistent with the 132 day average for the prior decade.
• Listing discount—the percent difference between the list price at time of sale to the sales price—fell to 4.9% from 8% in the same period last year.

Maintenance fees  usually cover debt service for the underlying mortgage, property taxes, maintenance, personnel and other items.  These fees are usually apportioned per share of stock in the corporation, and are in addition to the owner’s individual mortage (if any).  A review of a co-op’s financial documents will give you the breakdown on the expenses.

What’s behind this increase?

• Property Taxes:  New York City Property Tax revenue increased 9.68% in 2009 according to the NYC Department of Finance.
• Utility costs:  Natural Gas and heating oil costs continue to increase. Water costs are up slightly.
• Building Staff. Salary and benefits, usually renegotiated under union contracts every two to 3 years. 
• Insurance Costs:  Varies by building and location, usually covering liability and disaster damages
• Building upkeep, including major repairs to plumbing, electrical, heating and the roof.

What can the Board do?

• Cancel or delay discretionary projects
• Request several estimates for upcoming projects.
• Refinance underlying mortgages.
• Impliment a flip tax.

When faced with rising costs, there is little a co-op board can do but pass the costs throught to the shareholders as either increased maintenance fees or temporary (or permenant) assessments.  The decision to raise maintenance fees ultimately rests with the co-op boards.

Inspired by Smart Money article by Annamaria Androitis.

The restoration of the limits only apples to FHA mortgages, not Fannie Mae and Freddie Mac, which also expired at the end of September.  The conforming loan limit for these two secondary mortgage market companies will remain at a maximum of $625,500.

While this may be good news for many markets, in Manhattan, where over 70% of the apartments for sale are Co-ops, it probably won’t make much difference.  Most co-op boards require 20-50% down payments and higher income to debt rations (25-30% maximum debt to income).   Lenders for most condos are asking for at least 20% down payment to qualify for a loan.

Excerpts from Daily Real Estate News, November 18, 2011

“While the more cautious approach to underwriting mortgages is justified, the longer turn times and more numerous requests for information tend to have a negative impact on satisfaction,” said David Lo, director of financial services at J.D. Power and Associates. “Good underwriting and delivering a satisfying customer experience are not mutually exclusive, and some of the negative effects of a tightened lending environment can be mitigated by simply improving communication between lenders and customers.”

The 2009 Primary Mortgage Origination Satisfaction Study measures customer satisfaction in four key factors of the mortgage origination experience:

• application/approval process
• loan officer/mortgage broker
• closing
• contact

According to responses from more than 3,400 consumers who originated new mortgages within the previous 12 months here’s the top mortgage lenders BB&T (Branch Banking and Trust) 783 out of 1,000,  Wachovia 781, National City Mortgage  769, SunTrust Mortgage 769, Wells Fargo 754, Flagstar Bank 744, GMAC Mortgage  744,  Bank of America, 741

Plan

Foreign nationals obtain a mortgage like anyone else

Foreign nationals can approach local NYC banks, national lenders, credit unions and mortgage brokers to apply for a mortgage. Not all lenders offer foreign national programs, but they are readily available.

As a foreign national, one must be prepared to put a down payment as high as 40% of the purchase price—required by the lender because it typically will only loan 60-80% of the purchase price. Interest rates are reasonably priced and there are no forbidden property types so you can finance a condo and a co-op just as easily as a single-family home. Some lenders will require you to prove your Visa status or type of Visa you possess that gives you permission to be in the United States, be it for a business or a pleasure trip or to come to the U.S. to work, study, conduct business or immigrate.

Foreign nationals who hope to purchase co-ops will need to go before the co-op board, just as citizens do.  The co-op board may impose its own requirements such as requiring a green card, U.S. tax returns and other conditions. Co-op restrictions may make it more convenient for foreign nationals to purchase condos because the bylaws and rules of condo associations are typically less restrictive than those of co-ops.

If the purchase is strictly for investment purposes I would recommend the purchase of a condo. That said, in New York City, there are “condops” (a cross between a coop and a condo) which may allow you the flexibility as an investor but at a lower cost.

The bottom line is that a foreign national can obtain mortgage financing just like a The bottom line is that a foreign national can obtain mortgage financing just like a U.S. citizen would in order to establish a NYC mortgage. Find a lender that offers foreign national loans and apply for the mortgage. Then sit back and wait for information to be processed—just like a U.S. citizen would have to do.

Co-op, Condo or Condop?

If you yearn for the freedom of condo living but your pocketbook won’t stretch beyond the co-op price range, a condop may be perfect apartment for you. To understand the differences and what they mean to your budget, here’s a quick rundown on the basics of modern living in Manhattan:  co-ops, condos and condops.

Co-ops are by far the most common form of apartment ownership in Manhattan – over 70 % of available apartments for sale are in co-op buildings. Co-op means cooperative ownership. Rather than owning your apartment, you become a member of the corporation which owns the entire building and you own shares in that corporation. Monthly maintenance fees cover building expenses including heat, hot water, insurance and staff salaries. In addition, your maintenance charge also  includes real estate taxes and  your apartment’s share of the underlying mortgage on the building. A portion of these maintenance fees (taxes and interest on the building’s mortgage) are tax-deductible.

Co-op boards play a huge role when you want to purchase or sell your home. You will be required to submit detailed financial information, tax returns, and personal and business reference letters and appear for a personal interview in order to gain the approval of the board before you can purchase your home. In addition, some boards may not allow you to sublet your apartment and may even have a say over the selling price, since a below-market sale could affect everyone else’s investment.

A condop is a co-op with less restrictive condo-type rules.

A Condo, short for condominium, is an alternative choice for apartment ownership. The number of available condos has grown in recent years, especially in new construction. When you buy a condo, you own your apartment outright just like you would own a single family house.  You don’t have to go through the board approval process.  And once you’ve bought, you have more control over your home.  Usually, you can rent it out to anyone you choose and when you are ready to sell it, you don’t need to deal with board approval for your buyer as you do in a co-op.

Monthly maintenance fees -called common charges- are usually lower than co-op maintenance charges, but don’t provide any tax deductions because there is no underlying mortgage on a condo and you pay property taxes on your apartment directly to the city.

So what’s a condop? Simply put, a condop is a co-op with less restrictive condo-type rules. With condops you still need to play well with others and you own shares in the co-op but the rules are often more relaxed than the standard co-op. Condops, like most condos,  may allow you to finance a higher portion of the price by requiring lower  down payments,  and usually there will be  no high-stakes personal interview with the board.

In a condop, like a co-op, some of the monthly maintenance fees are tax-deductible   but like a condo you’re usually relatively free to rent your apartment, use it as a pied-a-terre, may be able to have live/work space and may be able to sell your property more easily. Prices for condops are usually lower than comparable apartments in condos.

Not all condop buildings have these flexible rules, so you need to study individual listings carefully when looking for condops, and be sure your buyer’s broker and attorney are familiar with their structure.